THE ITO(IT)-4(1), MUMBAI V. ALKYL SHRI KUMAR BHAJANLAL NARNG, MUMBAI

ITA 2744/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8435 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 03-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAV
• Keywords: Business income; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER I.T.A.NO.2744/MUM/2008 - A.Y 2005-06 INCOME TAX OFFICER (I.T)-4(1), MUMBAI VS. SHRI KUMAR BHAJANLAL NARANG, 303/304, MAHAVIR BUILDING, 44/46,POPATWADI, KALBADEVI, MUMBAI 400 002. PAN: AAXPN 6404 E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.S.SRIVASTAV. RESPONDENT BY : SHRI PARAS SAVLA. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING G ROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] ERRED IN HOLDING THAT GAINS EARNED ON SALE O F SHARES SHOULD BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOM E. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE YEAR ASSESSEE DECLARED SHORT TERM CAPITAL GAINS AMOUNTIN G TO ` `` ` .3,10,050/- AND THE SAME WERE ADJUSTED AGAINST THE BROUGHT FORW ARD LOSS. DURING THE ASSESSMENT PROCEEDINGS, AO OBSERVED THAT ASSESS EE HAS CARRIED OUT MANY TRANSACTIONS, AS MANY AS 32 AGAINST THE CL AIM OF 13 TRANSACTIONS BY THE ASSESSEE. HE FURTHER OBSERVED T HAT ASSESSEE HAS ALSO INDICATED IN THE RETURN OF INCOME THAT BUSINES S EXPENDITURE ON ACCOUNT OF LEGAL FEES AND SUBSCRIPTION TO THE EQUIT Y STOCK RESEARCH AND BANK CHARGES WERE CLAIMED AT ` `` ` .13,277/-. FURTHER, ASSESSEE HAS INDICATED BUSINESS EXPENDITURE OF ` `` ` .22,500/- ON ACCOUNT OF LEGAL FEES 2 AND ACCOUNTS WRITING. IN VIEW OF THIS, THE INCOME E ARNED FROM PURCHASE AND SALE OF SHARES WAS ASSESSED AS BUSINESS INCOME . 3. ON APPEAL BEFORE THE CIT[A] , IT WAS MAINLY SUBM ITTED AS UNDER: A) THE SALE OF SHARES/MUTUAL FUNDS WAS EFFECTED ONLY O N 14 DAYS. B) THE VALUE OF SHARES & MUTUAL FUND SOLD DURING THE Y EAR WAS ` `` ` .10108648/-. C) THE INVESTMENT IN SHARES & MUTUAL FUNDS HELD AT YEA R END WAS ` `` ` .16495554/-. D) THERE ARE ONLY 15 NUMBER OF COMPANIES/MUTUAL FUND INSTITUTIONS IN WHICH THE APPELLANT HAS EFFECTED SA LES DURING THE YEAR. E) THE SHORT TERM GAIN MADE BY THE APPELLANT IS ` `` ` .3,10,031/- F) THE APPELLANT HAS ALWAYS TREATED HIS INVESTMENT IN SHARES & MUTUAL FUNDS AS INVESTMENTS & HAS ACCORDINGLY PR EPARED & PRESENTED HIS RETURN OF INCOME, YEAR AFTER YEAR. G) THE APPELLANT HAS BEEN PREPARING BOOKS OF ACCOUNTS RIGHT FROM THE YEAR SINCE HE HAS BEEN FILING HIS RETURN OF INC OME IN INDIA. H) ALL INVESTMENTS MADE BY THE APPELLANT WERE FROM HIS OWN FUNDS. IT WAS FURTHER SUBMITTED THAT THE ABOVE SUBMISSIONS WERE SUBSTANTIATED BY THE BOOKS OF ACCOUNT MAINTAINED, W HICH CLEARLY SHOWED THAT THE SHARES WERE PURCHASED ON INVESTMENT ACCOUNT. IT WAS ALSO SUBMITTED THAT THE VOLUME CARRIED OUT BY THE A SSESSEE COULD NOT BE TERMED AS HIGH VOLUME. THE LD. CIT[A] AFTER EX AMINING THE SUBMISSIONS REFERRED TO THE BOARDS CIRCULAR NO.4/2 007 AND DELETED THE ADDITION BY MAKING FOLLOWING OBSERVATIONS IN PARA 6 .1: 6.1 FROM THE SUBMISSIONS AND DETAILS FILED, IT IS CRYSTAL CLEAR THAT THE APPELLANTS INTENTION IS ONLY TO INVEST IN SHAR ES AND SECURITIES IN INDIA AND NOT TO TRADE IN INDIA. IT IS CLEARLY REFL ECTED IN THE BALANCE SHEETS PREPARED BY THE APPELLANT IN THE CURRENT YEA R AND EARLIER YEARS. THE APPELLANT HAS ALSO CONSISTENTLY CLAIMED IN THIS YEAR AND EARLIER YEARS THAT IT HAD ONLY MADE INVESTMENTS IN INDIA IN SHARES AND SECURITIES AND THE INTENTION IS NOT TO TRADE IN SHA RES AND SECURITIES IN INDIA. IN VIEW OF THIS, I HOLD THAT THE GAINS SHOUL D BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 3 4. BEFORE US, LD. DR STRONGLY RELIED ON THE ORDER O F THE AO AND SUBMITTED THAT SOME TIMES SHARES WERE SOLD BY THE A SSESSEE WITHIN A VERY SHORT DURATION OF 2/3 DAYS. 5. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE CIT[A]. HE ALSO FILED A CHART SHOWING THE TRANSACTIONS AND POINTED OUT THAT VERY FEW TRANSACT IONS HAVE BEEN CARRIED OUT. AS FAR AS SHARES ARE CONCERNED, ONLY 1 2 PURCHASES WERE MADE DURING THE YEAR AND AS FAR AS SALES ARE CONCER NED SHARES WERE SOLD WHICH WERE PURCHASED DURING THE YEAR AS WELL A S IN SIX CASES SHARES WHICH WERE PURCHASED IN THE LAST YEAR WERE A LSO SOLD DURING THE YEAR. REST OF THE T RANSACTIONS ARE ON ACCOUNT OF SUBSCRIPTIONS TO MUTU AL FUNDS AND SALE OF THE SAME AND, THEREFORE, EVEN THE NUMBER OF TRANSACTIONS IS NOT VERY HIGH. FURTHER, ASSESSEE HA S NOT BORROWED ANY FUNDS FOR MAKING INVESTMENTS AND THE INVESTMENTS WE RE ALSO RECORDED AS INVESTMENTS IN THE BOOKS OF ACCOUNT. HE ALSO REL IED ON THE FOLLOWING DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNA L: I. MRS.AMITA A. KAPADIA VS. ITO I.T.A.NO.7054/M/2007, A.Y 2005-06 BENCH A DATED 3-2-2009. II. GOPAL PUROHIT VS. JT. CIT (2009) 20 DTR 99 (MUM) (T R9B) III. SHRI BHARAT KUNVERJI KENIA VS. ADDL. CIT I.T.A.NO.6544/M/2008, A.Y 2005-06, BENCH B DATED 15-5- 2009 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FIN D FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. THE ASSESSEE HAS SHOWN THE CLOSING STOCK IN HIS BALANCE-SHEET AS INV ESTMENT. THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR INVESTMENT AND HAS NOT 4 EMPLOYED ANY INFRASTRUCTURE FOR CARRYING OUT THE BU SINESS. THE ASSESSEE IS A NON RESIDENT AND POSSIBLY COULD NOT H AVE CARRIED OUT ANY BUSINESS IN SHARES WITHOUT HAVING AN OFFICE AND SOM E EMPLOYEES EVEN THE NUMBER OF TRANSACTIONS IN THE WHOLE YEAR GIVEN AS PER THE AO ARE ONLY 32, INCLUSIVE OF BOTH SALE AND PURCHASE TRANSA CTIONS. THIS FREQUENCY OF THE TRANSACTIONS ITSELF, IN OUR VIEW, CANNOT BE DESCRIBED VERY HIGH, BECAUSE IF SOMEBODY PURCHASES A SHARE ON CE IN A MONTH AND SELLS THE SAME, IN ALL THERE WOULD BE MINIMUM 2 4 TRANSACTIONS IN AN YEAR. CONSIDERING THE OVER ALL FACTS, WE ARE OF THE VIEW, THAT THE LD. CIT[A] CORRECTLY HELD THAT THESE TRANSACTIONS CANNO T BE CALLED AS BUSINESS TRANSACTIONS AND, ACCORDINGLY, WE CONFIRM HIS ORDER. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF FEBRUARY, 2011. SD/- SD/- (R.S.PADVEKAR) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 11 TH FEBRUARY, 2011. P/-*